Macchiato Corporation issued 10%, P6,000,000 bonds payable on January 1, 2028 and pays interest semi-annually every July 1 and January 1. The bonds were issued on January 1, 2013 when the prevailing market rate of interest for similar debt security was at 8%. The records also revealed that the difference between the proceeds from the bond issuance and the face value of the bonds were charged to interest expense when the bond was issued. The company's accountant recorded the payment of interest as debit to interest expense and credit to cash at nominal amount.

 

Determine the following as a result of your audit:

1. What is the issuance price of the bonds on January 1, 2013?
2. What is the correct carrying value of the bonds reported in its December 31, 2020 statement of the financial position?
3. What is the correct amount of interest expense that Macchiato should recognized in its statement of comprehensive income for the period ending December 31, 2020?
4. What is the correct carrying value of the bonds reported in its December 31, 2021 statement of financial position?
5. What is the correct amount of interest expense that Macchiato should recognized in its statement of comprehensive income for the period ending December 31, 2021?
6. What is your proposed adjusting journal entry, assuming that the errors were discovered in your audit for year 2021?